DISCLAIMER: I use this platform and I love it!
Robinhood Investing: Breaking down the PROS and CONS
After much hype, Robinhood appeared on the investing scene in 2014 with the launch of it’s mobile app. Their big selling point: $0 trading. That’s right: completely commission-free trades. Their big claim was that they wanted to make trading accessible and easy for everyone. There was even a 500,000-person long waitlist. Fast-forward to 2018, and how has it turned out? Well, there are pros and cons to every platform, Robinhood is no exception. Let’s break them down so you can decide for yourself if this platform is right for you.
Commissions – They weren’t kidding. It sounds too good to be true, but it’s legit. You can trade with $0 commissions. Robinhood must get asked all the time how they actually make money, because they’ve listed it in their FAQ. (https://support.robinhood.com/hc/en-us/articles/202853769-How-Robinhood-Makes-Money) They collect interest on the cash and securities in their account. Beyond that, they offer a paid option called Robinhood Gold that starts at $6 per month, and gives traders a variety of perks including after-hours trading and (at least) 2x your buying power. So they’ve taken the “freemium” business model that’s popular with software and adapted it to a trading platform. Smart.
No minimum balance – Most trading platforms have a minimum balance for you to get started. For many people, that minimum balance is a barrier to entry, no matter how small it is. True to their motto of Investing, Now For the Rest of Us, Robinhood has no minimum balance, so people of all means can get involved.
Easy to use – When you’re a beginner, or just learning about the stock market, some of the more robust (and powerful) trading platforms can be complicated and intimidating. The Robinhood sign-up and funding process is quick and painless, and the app interface is easy-to-use and streamlined. You can do everything you need to do right from your mobile phone. Launched earlier this year, (https://www.forbes.com/sites/karlkaufman/2018/03/27/free-brokerage-robinhood-is-now-available-on-the-web/#513cfae829d3) the web version does have more research tools (and some novel features, like stocks grouped as collections around themes such as “female CEOs”), but it still maintains a relatively simple and straightforward look and feel. Beginners will have no trouble using Robinhood.
Limited research and analytics tools – The Easy to use PRO listed above doubles as a CON. There aren’t many bells and whistles on the mobile app, and even with the web version, you won’t find the research tools and analysis software that you get with trading platforms like TDAmeritrade, E-Trade or Merrill Edge. That might be fine for some people, but for more advanced investors it’s going to be a problem.
Only individual taxable account option – You can’t use this as a retirement account, only individual taxable accounts. It would be nice to use a single platform for everything, but if you have a ROTH or IRA, you’ll still need to have an account at another broker.
No mutual funds or bond trading – Mutual funds and bond trading aren’t supported. That alone will take this platform off the list for a lot of investors. However, just this year Robinhood launched a cryptocurrency trading program, so it does look like they are expanding their offerings here.
Overall, Robinhood is a solid platform that’s great for beginners. It truly does accomplish its task of making basic securities trading accessible to everyone. It’s strength is also it’s weakness, as more advanced investors will not get the research and analysis tools or account options they need to execute a comprehensive strategy. If you’re not sure if it’s right for you, we’d say go ahead and give it a try. After all… it’s FREE.